Commodity Corner: QE3 Expectations Boost Oil

Light sweet crude oil for August delivery rallied Friday on expectations that a third attempt by the Federal Reserve to stimulate the economy would be bullish for commodities.

After reaching $97.74 and bottoming out at $95.21, the WTI gained $1.55 for the day to settle at $97.24 a barrel. The September Brent contract traded within a range from $115.25 to $117.65 before ending the day at $117.26, representing a $1.00 gain from Thursday. The August Brent contract, which expired Thursday, had settled at $118.32.

Testifying before a congressional panel this week, Fed Chairman Ben Bernanke roused markets Wednesday by suggesting that the Federal Reserve may launch a third round of quantitative easing. The "QE3" strategy would aim to improve liquidity in the U.S. economy by printing more money to buy Treasury bonds, encouraging banks to pursue riskier investments by boosting lending to businesses and consumers. Because more money would be available to banks, the value of the U.S. dollar against other currencies would diminish. Hence crude oil would be a better buy for investors using currencies other than the greenback.

On Thursday, the dollar gained strength and oil futures plunged after Bernanke stressed that the Fed had no immediate plans to set QE3 in motion. Investors on Friday, however, appeared to assume that such a policy decision would eventually be implemented.

With temperatures expected to approach or perhaps exceed the triple digits from the Upper Midwest to the East Coast, demand for electricity to power air conditioners and fans is set to be high well into next week. As a result, August natural gas surged well over four percent before ending the day at $4.55 per thousand cubic feet.

The front-month contract price for gas traded from $4.38 to $4.56 Friday.

Gasoline for August delivery edged upward by one cent to settle at $3.13 a gallon. The intraday high and low prices for gasoline were $3.15 and $3.10, respectively.